A better way to pay CEOs?
Managerial incentives can no longer be understood without a solid understanding of stock options. Stock option grants have increased dramatically in the past 15 years or so. For example, the average CEO stock option grant (valued at Black-Scholes and in inflation adjusted 1994 dollars) increased from $155 thousand to $1.2 million between 1980 and 1994, representing an almost 700% increase. Moreover, for the largest publicly traded companies, stock option grants are now larger on average than salary and bonus combined, and more than 90% of all CEOs now hold stock options (Hall and Liebman, 1998).
KeywordsStock Price Stock Option Downside Risk Exercise Price Executive Stock Option
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